Pooled fund plunges into small timber enterprise

A pooled development fund aimed at small business investment in the timber and forest products sector will be launched before the end of the year.

The private equity fund - Plantation TimberBank Australia (PTA) - is seeking to raise an initial $6 million and then up to $30 million.

About 120 pooled development funds (PDFs) operate in Australia, with investments valued at about $1 billion, but PTA will be the first for small and medium-sized enterprises (SMEs) operating in the timber and forest products sector. It aims to invest in SMEs that have up to $50 million in assets.

PTA is a partnership of a boutique funds manager, Intrinsic Investment Management, and private agribusiness company Plantations Timber Group, based in Mt Gambier, South Australia.

Intrinsic managing director Glenn Woolley said Australian consumption of forest and wood products was expected to grow by 5-15 per cent until at least 2010. The investment would be directed at any company in the sector, from furniture makers to farm foresters, timber mills and specialists in timber genetics.

"Preliminary due diligence on a number of timber industry investments indicates an internal rate of return of 12 to 25 per cent over the longer term," he said.

Mr Woolley said PDFs offered tax concessions for PTA. Money made from investments, both dividends and capital gains, would be taxed at 15 per cent, like superannuation, not the company rate of 30 per cent.

For PDF shareholders, dividends are exempt from income tax and no capital gains tax is payable on appreciation of shares.